Professional indemnity insurance is intentionally broad so it captures lots of situations, but this can also make it difficult to understand. I like to simplify it by thinking of it as insurance for silly mistakes or problem clients. It's designed to defend you if a client accuses you of:
- making a mistake in your work
- causing them loss of income
- not completing work to their expectations
If any of these accusations lead to a loss for the client, they can try to recover this from you. Usually we see claims for loss of income, compensation to hire other freelancers to complete work, or expenses incurred to fix mistakes.
How does professional indemnity insurance work?
Your insurance is triggered if a client threatens legal action against you or tries to recover compensation or damages from you. Depending on the nature of the claim, your professional indemnity insurance would pay:
- legal costs to defend you (the insurer appoints a team of legal experts so you don't have to)
- compensation to your client for loss of income
- damages awarded to your client
- mitigation costs to you (the insurer will pay what's owed to you if your client refuses to pay your fees, threatens to bring a claim against you and the insurer believes this will avoid a claim for a greater amount)
The idea is that you're passing the financial burden onto the insurer. Professional indemnity insurance exists to put you back in the same financial position after a loss as you were in before a loss.
A real example of a claim
After so many years helping freelancers stay in business, we know the most common claims each profession experiences.
Here's just one story of a With Jack customer that used their professional indemnity insurance to help them navigate a tricky project.
A freelancer was hired to design a website with an important launch date. The project didn't go smoothly and the freelancer struggled to deliver the work they'd promised the client on time. Fast forward to launch day, the website lacked important functionality and—in the client's eyes—wasn't fit for purpose.
The client refused to pay the final invoice and threatened to involve solicitors if the freelancer pursued payment. They also outlined additional expenses incurred such as:
- hiring new contractors to resolve the issues and help them launch quicker
- loss of income due to missing their launch date
- expenses incurred for marketing costs to drum up buzz for a botched launch
The unpaid invoice worth £24,000 was settled by the insurer under the ‘Mitigation Costs’ clause of the policy. The insurer's legal experts also provided the freelancer with an email to send to their client. This was to confirm that no legal action or expenses would be pursued and the project is considered at an end.
How valuable is professional indemnity insurance?
"I don't think I need professional indemnity insurance. I've been freelancing for years and have never had a problem before." — Lots of freelancers
If you've never had a problem client or been given a reason to worry before, you might struggle to see the value of being insured. We hear this a lot, but it's dangerous thinking and isn't dissimilar to believing you don't need to wear a seatbelt because you've been driving for years and have never had an accident.
Even if we've never had a bump in our car, we still buckle up to mitigate the damage should we take a knock. Insurance works in much the same way. Professional indemnity insurance won't prevent something bad from happening, but it can limit the damage.
We don't doubt the quality of your work or your ability to choose the right clients to work with, but all it takes is that one bad client or one mistake to slip through for your policy to more than pay for itself.
Even if you never have to use the practical element of your policy (legal help), every freelancer benefits from being insured because it helps you be a confident freelancer. How? It gives you the confidence to:
- Stand up to unreasonable clients
- Go into projects with confidence
- Navigate client relationships that have broken down
Being insured gives you confidence because, if any of these situations did escalate to the next stage, your policy can help you.
Professional indemnity insurance gives you access to a team of legal experts for a small, monthly sum meaning you avoid:
- the pain of expensive, upfront fees
- the friction of trawling Google to find a lawyer who's an expert in your dilemma
Professional indemnity insurance doesn't just provide you with legal help—there's also the emotional support. If a situation has reached the stage where your policy is triggered, this means either a threat of legal action has been made against you or the client is trying to recover damages from you. It's a scary experience for any freelancer to face, but knowing you aren't alone and have the backing of a team of legal experts takes the edge off.
Some clients are bad apples
"In our study, 44% of respondents told us they've been stiffed by a client before." —And Co
According to And Co, almost half of freelancers are stung by a bad client. In our experience, a lot of situations arise because the client feels they can take advantage of the freelancer and the freelancer doesn't have the correct processes in place to stand up for themselves.
Here are some things you should consider to be a bulletproof freelancer:
- Setting boundaries by working with a contract
- Making regular back-ups of your work
- Nailing your project management processes so projects run on time, and you and your client are on the same page
- Getting insured so you have legal help should any situations escalate
- Managing your cashflow
Professional indemnity deep dive
Let's take a closer look at some of the most helpful features of the professional indemnity policy for freelancers. Policies do vary so you should consult your policy wording or speak to your insurer.
Intellectual property and copyright infringement
We see a lot of copyright infringement claims at With Jack. The copyright ingringement clause is useful for designers whose work (logos, designs, custom type faces) is accused of infringing someone else's copyright. We've also found the intellectual property element is helpful for developers where arguments arise over who owns the code. All freelancers are at risk of copyright infringement and cover extends to infringement of domain names, trademarks, trade names, logos and more.
Legal fees can get expensive. If a claim is brought against you the insurer will not only appoint a team of legal experts to defend you, they'll also cover the cost of legal fees. If a threat of legal action is made against you when uninsured, it leaves you in a position of being unable to defend yourself due to the expensive legal fees. This means you're likelier to give into the client's request to put the situation to bed, but at a huge loss to yourself.
If a client is dissatisfied with your work, they may refuse to pay any or all your fees and threaten to bring a claim against you. The insurer will pay you the amount owed to you by your client if they believe this will avoid a claim for a greater amount. This is one of the most used policy features. If a situtation has escalated to the point your professional indmnity policy is triggered, it's safe to assume your client isn't happy and they might not pay you for the work completed.
The negligence clause is intentionally broad so it captures lots of different scearios. Think of this as the bread and butter of your policy. It covers careless mistakes you make or that your client perceives you to have made. Think technical errors with your code that's impacted the functionality of the product, a typo on your client's packaging that's went to print or a misrepresentation around what work will be delivered.
Breach Of Contract
A lot of freelancers mistakenly assume they don't need insurance if they have a contract, but contracts can be breached. If a project isn't delivered on time or to spec, you're vulnerable to claims of breach of contract.
Hopefully we've defined what professional indemnity is without the insurance jargon and you can see how it applies to you as a freelancer with real-world examples.
With all of the claims we've dealt with, not one business expected to have to use their insurance. They just had that one bad client. That one unlucky project that didn't go to plan. Or they made that one mistake that ended up being costly.
Fortunately, they had professional indemnity insurance. And so should you. Get insured today.